Should Taxes Determine Where You Live?
Why a “low-tax” state may not produce the savings you expect, and why the best place to live is rarely found in a tax-rate table
We frequently hear some version of the same question: “Would we be better off moving to a state with lower taxes, or staying put in a state with lower taxes?”
It is a reasonable question. State income-tax rates are visible, easy to compare and sometimes significant. But they are only one part of a much larger picture. Across tax and financial planning, the conversation is becoming more nuanced. Instead of asking only which state has the lowest income-tax rate, a more useful question is:
How would living there affect our complete financial picture and the overall life we want to lead?
Our broader perspective is that taxes deserve a seat at the table, but rarely the head of the table. When your financial circumstances provide some flexibility, taxes should be considered carefully without becoming the primary driver of where you establish roots.
“No income tax” does not mean “no tax”
Every state and local government needs revenue to provide schools, roads, public safety, healthcare programs and other services. They do not all collect that revenue in the same way.
One state may rely heavily on individual income taxes. Another may collect more through sales taxes, property taxes, business taxes, excise taxes, estate taxes, local levies or fees. Some states also have revenue from natural resources or choose to provide a different level of public services, so it would be inaccurate to say that every tax reduction is fully recovered elsewhere. Nevertheless, the absence of one highly visible tax tells us very little by itself about a particular household’s total burden.
Consider Oregon and Washington. Oregon does not impose a general sales tax, but it does impose an individual income tax. Washington does not impose a broad individual income tax, but it relies on retail sales and other taxes and imposes a tax on certain capital gains. The net effect is that the tax is being collected by the state, but in different manners.
Despite these very different systems, the Tax Foundation’s aggregate 2024 estimates placed the state and local tax burden at 10.8% of income for Oregon residents and 10.7% for Washington residents. The organization also cautions that these are statewide aggregates, not estimates for a specific taxpayer. That distinction is essential. (Tax Foundation)
A separate household-level analysis illustrates why individual circumstances matter so much. Using 2025 law and 2024 income levels, the Institute on Taxation and Economic Policy estimated total state and local taxes at 9.7% of income for middle-income Oregon households and 10.9% for middle-income Washington households. The study excludes seniors and uses a different methodology, but that is precisely the point: a statewide label cannot tell any one family what it will pay. (Oregon analysis and Washington analysis)
New Hampshire offers another example. It has neither a broad-based individual income tax nor a general sales tax, yet property taxes accounted for 33% of its combined state and local general revenue in 2024, the highest share in the nation. (Tax Policy Center)
A California-to-Texas move provides an especially useful illustration. A retired couple who have owned a California home for many years decided to move to Texas, attracted by the absence of an individual income tax. Under California's Proposition 13, the property-tax rate is generally limited to 1% plus voter-approved debt, and a home's assessed value ordinarily cannot increase by more than 2% per year. Thus, the owner's taxable value was therefore substantially below the home's current market value. When the couple purchased a home in Texas, however, that property began with a new appraisal based on its current market value. While Texas offers homestead exemptions for homeowners age 65 or older, its general homestead appraisal cap ordinarily allows future increases to 10% per year; it does not carry over the couple's much lower California assessment. In fact, one recent statewide comparison estimated effective property-tax rates of approximately 1.70% in Texas and 0.60% in California. As a result, the couple avoided California income tax yet were surprised by a substantially larger property-tax bill in Texas, essentially eliminating the overall total perceived tax savings.
The lesson is not that all states cost the same. They do not. The lesson is that the largest number printed on a state’s tax-rate chart may not be the number that matters most to you. This is what many clients focus on, but may not be material for your overall situation.
Housing and everyday costs can overwhelm the tax difference
For many households, the largest financial difference between two locations will not appear on a tax return.
Housing and transportation accounted for just over half of average U.S. household expenditures in 2024. Housing alone represented 33.4%. (U.S. Bureau of Labor Statistics) Regional price differences can also be substantial, and the Bureau of Economic Analysis notes that housing rents are often the main driver. (U.S. Bureau of Economic Analysis)
A New York case study puts this in practical terms. Looking at the 20 largest county-to-county migration flows out of the state, the Fiscal Policy Institute estimated that a typical median-income family saved about $1,200 annually in state and local taxes, while potential mortgage savings averaged $18,300. In that analysis, housing savings were 15 times larger than tax savings. (Fiscal Policy Institute)
That does not mean every household leaving New York will have the same result, and the organization has a stated policy perspective. It does demonstrate why a tax-only comparison can misidentify the real source of savings. A family moving from an expensive city to a lower-cost suburb in another state may attribute the improvement to taxes when housing was responsible for most of it. Conversely, moving to a “tax-friendly” state with rapidly rising home prices, higher insurance premiums or transportation costs may produce less--to no--savings than expected.
We frequently hear some version of the same question: “Would we be better off moving to a state with lower taxes, or staying put in a state with lower taxes?”
It is a reasonable question. State income-tax rates are visible, easy to compare and sometimes significant. But they are only one part of a much larger picture. Across tax and financial planning, the conversation is becoming more nuanced. Instead of asking only which state has the lowest income-tax rate, a more useful question is:
How would living there affect our complete financial picture and the overall life we want to lead?
Our broader perspective is that taxes deserve a seat at the table, but rarely the head of the table. When your financial circumstances provide some flexibility, taxes should be considered carefully without becoming the primary driver of where you establish roots.
“No income tax” does not mean “no tax”
Every state and local government needs revenue to provide schools, roads, public safety, healthcare programs and other services. They do not all collect that revenue in the same way.
One state may rely heavily on individual income taxes. Another may collect more through sales taxes, property taxes, business taxes, excise taxes, estate taxes, local levies or fees. Some states also have revenue from natural resources or choose to provide a different level of public services, so it would be inaccurate to say that every tax reduction is fully recovered elsewhere. Nevertheless, the absence of one highly visible tax tells us very little by itself about a particular household’s total burden.
Consider Oregon and Washington. Oregon does not impose a general sales tax, but it does impose an individual income tax. Washington does not impose a broad individual income tax, but it relies on retail sales and other taxes and imposes a tax on certain capital gains. The net effect is that the tax is being collected by the state, but in different manners.
Despite these very different systems, the Tax Foundation’s aggregate 2024 estimates placed the state and local tax burden at 10.8% of income for Oregon residents and 10.7% for Washington residents. The organization also cautions that these are statewide aggregates, not estimates for a specific taxpayer. That distinction is essential. (Tax Foundation)
A separate household-level analysis illustrates why individual circumstances matter so much. Using 2025 law and 2024 income levels, the Institute on Taxation and Economic Policy estimated total state and local taxes at 9.7% of income for middle-income Oregon households and 10.9% for middle-income Washington households. The study excludes seniors and uses a different methodology, but that is precisely the point: a statewide label cannot tell any one family what it will pay. (Oregon analysis and Washington analysis)
New Hampshire offers another example. It has neither a broad-based individual income tax nor a general sales tax, yet property taxes accounted for 33% of its combined state and local general revenue in 2024, the highest share in the nation. (Tax Policy Center)
A California-to-Texas move provides an especially useful illustration. A retired couple who have owned a California home for many years decided to move to Texas, attracted by the absence of an individual income tax. Under California's Proposition 13, the property-tax rate is generally limited to 1% plus voter-approved debt, and a home's assessed value ordinarily cannot increase by more than 2% per year. Thus, the owner's taxable value was therefore substantially below the home's current market value. When the couple purchased a home in Texas, however, that property began with a new appraisal based on its current market value. While Texas offers homestead exemptions for homeowners age 65 or older, its general homestead appraisal cap ordinarily allows future increases to 10% per year; it does not carry over the couple's much lower California assessment. In fact, one recent statewide comparison estimated effective property-tax rates of approximately 1.70% in Texas and 0.60% in California. As a result, the couple avoided California income tax yet were surprised by a substantially larger property-tax bill in Texas, essentially eliminating the overall total perceived tax savings.
The lesson is not that all states cost the same. They do not. The lesson is that the largest number printed on a state’s tax-rate chart may not be the number that matters most to you. This is what many clients focus on, but may not be material for your overall situation.
Housing and everyday costs can overwhelm the tax difference
For many households, the largest financial difference between two locations will not appear on a tax return.
Housing and transportation accounted for just over half of average U.S. household expenditures in 2024. Housing alone represented 33.4%. (U.S. Bureau of Labor Statistics) Regional price differences can also be substantial, and the Bureau of Economic Analysis notes that housing rents are often the main driver. (U.S. Bureau of Economic Analysis)
A New York case study puts this in practical terms. Looking at the 20 largest county-to-county migration flows out of the state, the Fiscal Policy Institute estimated that a typical median-income family saved about $1,200 annually in state and local taxes, while potential mortgage savings averaged $18,300. In that analysis, housing savings were 15 times larger than tax savings. (Fiscal Policy Institute)
That does not mean every household leaving New York will have the same result, and the organization has a stated policy perspective. It does demonstrate why a tax-only comparison can misidentify the real source of savings. A family moving from an expensive city to a lower-cost suburb in another state may attribute the improvement to taxes when housing was responsible for most of it. Conversely, moving to a “tax-friendly” state with rapidly rising home prices, higher insurance premiums or transportation costs may produce less--to no--savings than expected.
Every state and local government needs revenue to provide schools, roads, public safety, healthcare programs and other services. They do not all collect that revenue in the same way.
When taxes may be a material factor
There are circumstances in which state taxation can and should receive greater weight. A detailed comparison may be especially valuable when a taxpayer:
In these situations, the difference can be substantial. The analysis should still compare actual projected liabilities, rather than top marginal rates or generalized “tax-friendly state” rankings.
A better relocation comparison
Before making a move, we recommend evaluating the decision in layers:
Let taxes inform the decision--not make it!
The goal is not to minimize the importance of taxation. Good planning should identify genuine opportunities and prevent unexpected costs. But a technically lower tax bill does not automatically create a better financial outcome, and it certainly does not guarantee a better life.
If two places are otherwise equally appealing, a careful tax comparison may be a useful tiebreaker. If one location offers the relationships, lifestyle, healthcare, career opportunities or community you value most, modest tax differences may be a reasonable price to live where you truly want to be.
Our advice is simple: choose the place that fits your life, then plan intelligently for the taxes that come with it.
This article is intended for general educational purposes and does not constitute tax, legal or financial advice. State and local tax laws change frequently, and the consequences of establishing or changing residency depend on each taxpayer’s facts and circumstances.
There are circumstances in which state taxation can and should receive greater weight. A detailed comparison may be especially valuable when a taxpayer:
- Expects a large business sale, stock sale or other capital-gain event;
- Has substantial recurring income from investments, retirement accounts, pensions or a closely held business;
- Is considering a state with an estate or inheritance tax;
- Owns high-value real estate or expects a significant change in property taxes;
- Operates a business that could create tax or filing obligations in more than one state;
- Will maintain homes, business interests or significant ties in multiple states; or
- Is genuinely willing and able to change domicile and document that change properly.
In these situations, the difference can be substantial. The analysis should still compare actual projected liabilities, rather than top marginal rates or generalized “tax-friendly state” rankings.
A better relocation comparison
Before making a move, we recommend evaluating the decision in layers:
- Project your household’s actual taxes. Include income, sales, property, capital-gains, estate or inheritance taxes, local taxes and any taxes specific to your business or investments.
- Compare the full cost of living. Housing, homeowners or renters insurance, healthcare, transportation, utilities and travel to visit family can readily exceed a projected tax difference.
- Consider how your income may change. A lower tax rate is less helpful if the move also reduces earnings, professional opportunity or business access.
- Evaluate what your taxes support. Public services, infrastructure, schools, transportation and community resources have value, even though that value is difficult to capture in a spreadsheet.
- Include the personal factors that cannot be deducted or itemized. Proximity to family and friends, climate, healthcare access, community, recreation and a sense of belonging often determine whether a move succeeds.
- Model several years, not just one. Include moving and transaction costs, changes in home value, expected retirement income, large future taxable events and the possibility that tax laws will change.
Let taxes inform the decision--not make it!
The goal is not to minimize the importance of taxation. Good planning should identify genuine opportunities and prevent unexpected costs. But a technically lower tax bill does not automatically create a better financial outcome, and it certainly does not guarantee a better life.
If two places are otherwise equally appealing, a careful tax comparison may be a useful tiebreaker. If one location offers the relationships, lifestyle, healthcare, career opportunities or community you value most, modest tax differences may be a reasonable price to live where you truly want to be.
Our advice is simple: choose the place that fits your life, then plan intelligently for the taxes that come with it.
This article is intended for general educational purposes and does not constitute tax, legal or financial advice. State and local tax laws change frequently, and the consequences of establishing or changing residency depend on each taxpayer’s facts and circumstances.
